Statement by the United States at the June 1, 2011 DSB Meeting

1. EUROPEAN COMMUNITIES AND CERTAIN MEMBER STATES – MEASURES AFFECTING TRADE IN LARGE CIVIL AIRCRAFT

A. REPORT OF THE APPELLATE BODY (WT/DS316/AB/R) AND REPORT OF THE PANEL (WT/DS316/R)

? Madam Chair, we would like to begin by thanking the members of the Panel, the Appellate Body, and the Secretariat staff assisting them for their hard work during this lengthy proceeding.

? Six years ago, almost to the day, one of my predecessors came before this Body to explain the problem facing the U.S. large civil aircraft (or “LCA”) industry.

The United States is concerned that certain measures of France, Germany, the United Kingdom, Spain, and the EU provide subsidies that are inconsistent with their obligations under the SCM Agreement and the GATT 1994. . . . Over its 35-year history, Airbus has benefitted from massive amounts of EC member State and EC subsidies that have enabled the company to create a full product line of aircraft and gain more than a 50 percent share of large civil aircraft sales. Every major Airbus aircraft model was financed, in whole or in part, with government subsidies taking the form of “launch aid” – that is, financing with no or low rates of interest, and repayment tied to, and entirely dependent on, sales of the financed aircraft. Moreover, if a particular model does not sell well, Airbus does not have to repay the financing. The Airbus A380 “super jumbo” alone received approximately US $3.7 billion in launch aid subsidies from France, Germany, Spain, and the United Kingdom.[1]

? That situation prevails today unchanged. Airbus is now into its fifth decade of benefiting from the massive amounts of market distorting launch aid on past models. And Airbus retains its leading global presence in the market for large civil aircraft.

The Panel and Appellate Body have vindicated the position of the United States by speaking clearly on this point: every single grant of launch aid to Airbus over four decades conferred a subsidy that caused adverse effects to the United States. The Appellate Body took a slightly different approach from the Panel but found that under any valid measurement, the terms the EU governments offered Airbus for launch aid support were more favorable than a commercial lender would have offered.

And the amounts of launch aid to Airbus are enormous. The Panel found that launch aid payments prior to 2000 amounted to $10.5 billion dollars.[2] Public data indicates that at today’s exchange rates, launch aid for the A380 alone came to $4.3 billion.

The Panel concluded that launch aid was fundamental to Airbus’s ability to launch and bring to market each of its models of large civil aircraft when and as it did. The Appellate Body confirmed this conclusion for each Airbus model.[3]

The Appellate Body stated that “either directly or indirectly, LA/MSF was a necessary precondition for Airbus’ launch in 2000 of the A380”[4] and that “it would not have been possible for Airbus to launch the A380 in 2000 relying exclusively on market financing.”[5]

The Appellate Body also flatly rejected the European Union’s arguments that, even without launch aid, Airbus could have launched an A320 type aircraft in 1987 and an A330 type aircraft in 1991.[6]

When it came to the remaining aircraft, the EU itself conceded that “a non-subsidized Airbus would not have been able to launch the A300, A310, and A340 LCA projects by the 2001-2006 reference period.”[7]

? It is no exaggeration to say that these reports conclude that, without launch aid, Airbus and its family of aircraft would not exist as we know them today.

? The Panel and the Appellate Body were also clear on the immensity of the adverse effects suffered by the U.S. large civil aircraft industry.

The reports find that subsidies to Airbus caused lost market share in some of the biggest aircraft markets in the world, including Europe and China.

The report also confirms that Boeing, the U.S. LCA manufacturer, lost sales amounting to hundreds of aircraft in sales campaigns involving 10 major airlines.

The finding of lost sales of hundreds of aircraft is particularly significant in light of the fact that the yearly output of the U.S. industry is 300-400 aircraft.

European subsidies did not stop with launch aid. The Panel and Appellate Body upheld U.S. claims regarding a number of other payments that the EU and 4 of its member States made to Airbus on subsidized terms and found that these payments worked with launch aid to harm the U.S. industry.

The Appellate Body confirmed that France and Germany subsidized Airbus by giving it equity financing worth $1.6 billion at a time when no commercial investor would have made such investments.[8]

The Appellate Body found that EU member States provided WTO-inconsistent subsidies to Airbus through infrastructure payments worth more than $1.2 billion. For example, the government of the German city of Hamburg paid approximately 750 million Euros to drain a wetland next to Airbus’s factory and then charged Airbus below-market rent for use of that land to produce the A380.[9]

Together, launch aid and other subsidies add up to some $18 billion in payments that the market would not have made, that benefited Airbus, and that caused serious prejudice to the U.S. large civil aircraft industry and the interests of the United States. In economic terms, the adverse effects of lost market share and lost sales far exceed the value of those payments.

In finding that these subsidies violated WTO rules, the Panel and the Appellate Body affirmed what the United States told this body six years ago – launch aid conferred an immense subsidy on Airbus that caused real and serious commercial harm to U.S. interests. Other subsidies contributed to that harm by allowing Airbus to develop and bring to market its aircraft when and as it did. [10]

The United States also takes note of reports that Airbus is now receiving launch aid for its newest aircraft, the A350. The findings from the Panel and the Appellate Body, however, should make clear to the EU, its member States, and to Airbus that a “business as usual” approach to funding Airbus is no longer acceptable.

Now that the DSB is ready to adopt these recommendations and rulings, it is time to start thinking about how to move forward. We are confident that, in light of the long history of WTO-inconsistent adverse effects that launch aid and other subsidies have created, the European Union and its member States will move quickly to comply with their obligations to withdraw the subsidies or remove their adverse effects within the six-month period provided under Article 7.9 of the SCM Agreement. We remain ready to work with the EU and the member States to achieve that end.

[Second intervention]

?The United States would like to provide clarifications on two issues that have been raised in previous interventions.

First, a question has been raised concerning the $18 billion figure mentioned in the first U.S. intervention. The EU has frequently argued that launch aid and other support are less than the United States asserts. We have provided today with our statement citations to the Panel and Appellate Body reports so that Members can verify the accuracy of the numbers we’re using. We are not aware that the EU has provided similar support for any different numbers.

Second, with respect to the issue of export subsidies, the Appellate Body found that the Panel misunderstood the applicable test to find de facto export contingency under Article 3.1(a) and footnote 4 of the SCM Agreement. The Appellate Body reversed all of the Panel’s conclusions on this issue, including the Panel’s findings that certain grants of launch aid were not export subsidies.

Therefore, whether the instances of launch aid to Airbus are prohibited export subsidies remains, for the time being, an open question.

The fact of the matter is that today the DSB will rule that EU and member State subsidies breached their WTO obligations. Each grant of launch air and the other subsidies provided by EU countries to Airbus over the last four decades caused adverse effects to the interest of the United States.

? With respect to the argument that the adverse effects findings were narrowed, I want to emphasize that we consider those findings to be quite broad. For example, the reports found lost sales in 10 sales campaigns between Airbus and Boeing. Those campaigns involved the airlines: easyJet, Air Berlin, Czech Airlines, Air Asia, Iberia, South African Airways, Thai Airways International, Singapore Airlines, Emirates Airlines, and Qantas.

?And the reports found loss of market share in such non-minor markets as the EU, Australia, China and Korea.

?Therefore, even without prohibited subsidies findings, the EU and its member states must still bring themselves into compliance with the DSB recommendations and rulings, once adopted.

Specifically, the EU and its member States will have to take appropriate steps to withdraw the subsidies or remove the adverse effects within six month